Practice Problems: Just-in-Time Systems and Lean Production Systems Problem 1: Bryant Electronics produces short runs of battery-powered

pocket lanterns. As th e new Materials Manager you have been asked to reduce inventory by introducing a kanban system. After several hours of analysis you have developed the following data for connectors used in one work cell. How many kanbans do you need for thi s connector? Daily demand: 1,500 units Production lead-time: 1 day Safety stock: 1 day Kanban size: 250 units Problem 2: Perkins Lighting wishes to employ a kanban in their new floor lamp production sy stem. For the floor lamp base, they have provided the following information: Daily demand: 300 units (with 300 business days per year) Holding cost: $20/unit/year Order cost: $10/order Lead-time: 2 days Safety stock: 600 units Assuming that the size of the kanban is the EOQ, find the size of the kanban and the number of kanbans required.

ANSWERS Problem 1: Demand during lead time = 1,500 Safety stock = 1,500 (One days demand) Therefore: Maximum inventory level = 1,500 + 1,500 = 3,000 Number of kanbans needed = maximum inventory level/kanban size = 3000/250 = 12 Problem 2: Daily demand: 300 units ( and 300 business days per year) Holding cost: $20/unit/year Order cost: $10/order Lead-time: 2 days Safety stock: 2 days demand Assume that the size of the kanban is the EOQ: Therefore: kanban size = 300 Number of kanbans = (demand during lead time + safety stock)/size of kanban = [(2 * 300) + 600]/300 = 1200/300 = 4 kanbans Few more Questions: 6.11 Ferdows Electronics, Inc. (FEI), produces short runs of custom microwave radios for railroads and other industrial clients. You have been asked to reduce inventory by introducing a kanban system. After several hours of analysis, you develop the following data for connectors used in one work cell. How many kanban s do you need for this connector? Daily demand 1,500 radios

Production lead time 1 day Safety stock day Kanban size 250 radios 16.12 Flores Manufacturing, Inc., is moving to kanbans to support its electron ic-board assembly lines. Determine the size of the kanban for subassemblies and the number of kanbans needed. Setup cost = $25 Annual holding cost subassembly = $200 per subassembly Daily production = 400 subassemblies Annual usage = 50,000 (= 50 weeks X 5 days each X daily usage of 200 subassembli es) Lead time = 6 days Safety stock = 1 days production of subassemblies Synchronous manufacturing and theory of constraints Review and Discussion Questions 1. State the global performance measurements and operational performance me asurements and briefly define each of them. How do these differ from traditiona l accounting measurements? Global performance measurement: Net profitmeasurement in dollars Return on investmentgenerally a percent of the investment Cash flowthe amount of cash available for day to day operations. From an account ing standpoint, deductions such as for depreciation are added back in since depr eciation is not really money spent Operational measurement: Throughputthe actual rate of sales generated by the system Inventoryall the money invested in things that are intended to be sold. This inc ludes raw materials, equipment, etc., but at the cost price, less any depreciati on (which is operating expense). Operating expensemoney spent to convert inventory into throughput. This includes direct and indirect labor, materials, depreciation, administrative costs, etc. Traditional accounting methods work with such things as standard costs, allocati on of burdens (which may consist of indirect labor, administrative costs, insura nce, taxes, depreciation, etc.), and gross profits, net profits, cost centers, p rofit centers, all of which may be based on standards and allocations. These ma y not have any basis in reality. Many examples can be cited where traditional accounting forces wrong decisions. One specific example that one of the authors has confronted is of a V. P. of man ufacturing who is terminating a very profitable product line, because on paper t his product line is losing money. Why? Because overhead is allocated based on the amount of direct labor and this product line is almost all-direct labor, wit h very little equipment involved. His allocation of everyone elses burden create s a paper loss. Under these circumstances he would lose his annual bonus and be rated down in his performance. Other areas of accounting differences: inventory in traditional accounting is ca rried the same as cost of goods sold, i.e., with all the labor and burdens inclu ded. In operational measurements terminology, inventory is carried as the cost o f the raw materials. 2. Discuss process batch and transfer batches. How might you determine wha t the sizes should be? Process batch size is the total number of units that are scheduled to be process ed within the same setup. Larger process batches involve fewer setups and, ther efore, have more output. The reverse is true for smaller process batches. Transfer batches refers to the movement of part of the process batch, rather tha n waiting for the entire job to be completed. A process batch of 1000, for exam ple, can be transferred in ten batches of 100 each. Process batch and transfer batch sizes can be controlled from a bottleneck or ca

pacity constrained resource. 3. Compare and contrast JIT, MRP, and synchronized manufacturing, stating t heir main features, such as where each is or might be used, amounts of raw mater ials and work-in-process inventories, production lead times and cycle times, and methods for control. Question JIT MRP Synchronized Manufacturing Where used Continuous flow, make-to-stock Job shop, custom shop Job shop , custom shop WIP Very low Very high low Production cycle time Very short Very long Short Schedule flexibility Level production for min. of 30 days MRP frozen for 3 0 days, but variable in work centers Can be changed daily as needed Regard for capacity limits High. Tries to balance capacity Terrible . May start off o.k., but quickly becomes inaccurate Is founded on capacity l imitations Labor skills Multi-skilled to help out other areas Specialized in own work area Same as MRP 4. Compare the importance and relevance of quality control in JIT, MRP, and synchronous manufacturing. Quality control is extremely important at each workstation in JIT, JIT cannot to lerate poor quality since the result is loss of throughput. Therefore, each wor ker or workstation is responsible for ensuring that only high quality work passe s through. Quality control in MRP is somewhat haphazardly applied. Defects can occur anywh ere and full responsibility for quality does not lie within each workstation. I nspection points are placed within the system, generally with the placement deci ded by the algorithm when the expected cost of bad quality output exceeds the cos t of inspection, we will place an inspection point there. Quality control in synchronous manufacturing is specifically decided based on im portance. First, a bottleneck or CCR is identified as the constraint of the sys tem. This critical resource will then be guaranteed that it will not waste time working on bad parts since inspection will be done on its incoming side. Flow after this bottleneck should not be interrupted or scrapped. Therefore, all par ts that join into this product after the bottleneck will have passed inspection. Also, all processing after the bottleneck will be of high quality so that scra p will not be created. In summary, inspect before the BN, and inspect all parts entering the flow after the BN; also perform high quality work at all stations after the BN 5. Discuss what is meant by forward loading and backward loading. Forward loading is similar to project scheduling. Tasks are scheduled from some pint into the future. When resources are limited, tasks are assigned until cap acity is reached and then carried forward to the next period. Backward loading is the MRP type scheduling, where the finished product or requi red part is needed. From that future point, a schedule is created back to the p resent, allowing for processing and lead time requirements at each step of the w ay. 6. Define and explain the cause or causes of a moving bottleneck. Generally, a moving bottleneck is caused by batch sizes that are too large. Wha t happens is that a large batch scheduled on a machine or resource which-on the average has excess capacity-prevents other products from being completed that al so need the same resource. This interrupts the flow and starves downstream reso urces. From their perspective looking upstream, they see that particular resour ce as the bottleneck. However, days or weeks later, because of the product mix, this apparent bottleneck will disappear. Another large batch size somewhere el se in the system will appear which does the same thing, i.e., starves downstream operations. 7. Explain how a nonbottleneck can become a bottleneck.

A non-bottleneck can become a bottleneck when it is scheduled with a batch size that is too large. For example, assume that machine 1 provides work to machine 2 and machine 3. Say that machine 1 works 7 hours out of each 8 hours and so is not a bottleneck. Suppose, however, that someone decides to save some setup ti me by scheduling work on machine 1 in much larger batches-say 20 hours for machi ne 2 and 15 hours for machine 3 (5 times larger batch sizes). Machine 3 will be starved for work since it will be dealing with a 40 hour cycle rather than an 8 hour cycle, and will have to wait until machine 1 produces the parts which it needs. Thus, from machine 3s point of view, machine 1 has become a bottleneck. 8. What are the functions of inventory in MRP, JIT, and synchronous manufac turing scheduling? MRP assumes WIP inventories and times the production of these inventories to coi ncide with the preplanned delivery dates. The costs of inventories are computed based on carrying costs. Inventories are seen as necessary. MRP systems allow for economic order quantities, buffer stocks, and safety stocks. In MRP system s, inventories are pushed through the productive processes. Just-in-time, on th e other hand, sees inventories as wasteful. Means are sought by which inventori es can be reduced or eliminated. Constant attention is given to the reduction o f unnecessary inventories. This creates a productive system where stability is important and quality must be assured. Synchronous manufacturing treats invento ry as a loan given to the manufacturing unit. Inventories are measured by raw m aterials cost. Buffer inventories are utilized to assure throughput. Overall, synchronous manufacturing discourages inventory if it serves no purpose. Invent ory is measured in terms of dollar days with the goal of minimizing dollar days. 9. Define process batch and transfer batch and their meaning in each of the se applications: MRP, JIT and bottleneck or constrained resource logic. In an assembly line, process batch refers to the batch size associated with a pr oduction process. Theoretically, this batch size can be infinite. The transfer batch refers to the number of parts produced in a sequence. This may be as sma ll as one. In MRP, process batch refers to the overall output of production pro cess while transfer batch would be equal to the calculated requirements for a gi ven time bucket. In JIT, the transfer batch size is preferably one. Process ba tches are infinite, as flexible production lines are capable of producing an ent ire product family with minimal setups. Process batch might be synonymous with the daily production quotas. In synchronous manufacturing, a process batch is o f a size large enough to be processed in a particular length of time. Transfer batches refer to the movement of part of the process batch. This allows parts t o be moved to succeeding workstations in the process. A transfer batch can be e qual in size to a process batch but not larger. 10. Discuss how a production system is scheduled using MRP logic, JIT logic, and synchronous manufacturing logic. In MRP, production is scheduled based on lead time requirements for a particular part of subassembly. Production dates for components are calculated based on l ead times offset from delivery due dates. In JIT, production is controlled usin g a kanban or visual record. When work is completed at a downstream station, a mo ve kanban is released and materials are transferred from the upstream station. Daily production schedules are determined based on a daily production quota. Sm ooth production schedules are sought to minimize disruptions to operations. In synchronous manufacturing, the production flows are controlled by the drum. The drum regulates the flow of materials throughout the entire system. 11. Discuss the concept of drum-buffer-rope. The drum is a bottleneck. It is referred to as the drum because it strikes the beat that the rest of the system uses to function. The buffer is inventory that is provided (typically prior to the drum) to make sure that the drum always has something to do. Buffers are also used to make sure that throughput is maintai ned throughout the production system. The rope is upstream communication from t he bottleneck so that prior workstations only produce the materials needed by th e drum. This keeps WIP inventories from building up. 12. From the standpoint of the scheduling process, how are resource limitati

ons treated in an MRP application and how are they treated in a synchronous manu facturing application? With MRP, requirements are exploded using MRP logic. Planned order release sche dules are calculated by the system. Capacity requirements planning (CRP) provid es feasibility check of these schedules. CRP matches planned production with ac tual capacity to ensure that schedules can be met, synchronous manufacturing pac es the entire production process by the bottlenecks. Therefore, if additional ( less) capacity is needed, capacity is added (restricted) at the bottlenecks. In this way the flow is controlled at each bottleneck or CCR to bring the capaciti es in line. 13. What are operations peoples primary complaints against the accounting pro cedures used in most firms? Explain how such procedures can cause poor decision s for the total company. The primary complaints against accounting departments have to do with the fact t hat accounting systems measure the wrong things, are inflexible and reward count erproductive or dysfunctional behavior. Accounting systems conform to rigid gui delines established by GAAP. As such, accounting data are often not useful for accomplishing the superordinate goals of the firm. An example is machine utiliz ation. Machine utilization measures the proportion of time that a machine is in use. In an accounting sense, high machine utilization is preferable because it means that the investment in the machine is producing a return. From an operat ions point of view, this behavior results in high WIP inventory. Another exampl e is quality. The generally accepted accounting definition of quality is that o f conformance. However, manufacturing may desire to adopt a definition of quali ty that considers customer needs. Accounting would be unable to accept the lat ter definition as it is more difficult to quantify. The two alternative definit ions of quality will reward different behavior within the firm. 14. Most manufacturing firms try to balance capacity for their production se quences. Some believe that this is an invalid strategy. Explain why balancing capacity does not work. In synchronous manufacturing, balancing all capacities is viewed as a bad decisi on. If capacity is truly balanced, completion deadlines may not be met due to v ariability in processing times. A better strategy is to balance the flow of pro duct through the system. 15. Discuss why Transfer batches and process batches many times may not and should not be equal. Transfer batches may be equal to or smaller in size than process batches. Rathe r than wait for an entire batch to be finished, it may be preferable to release part of a batch to the next downstream workstation so that smooth product flow c an be maintained. This will also result in lower levels of WIP inventory.